The unspoken crimes of the ASX — part 6

Spanish company Grupo ACS started a takeover of companies that affected the ASX (Images via Pixabay/Wikimedia Commons)

Continuing his series, Benjamin John Pauley looks at hostile company takeovers and the effect had on the stock market.

THE BIG INFRASTRUCTURE companies who are tendering for and winning the main infrastructure projects in Australia have a stranglehold over government and society. The big projects are won by a select few who have grown market share through acquisitions. Now that they dominate, governments are at their mercy. They are mostly foreign-owned corporations who are crippling us. Hardworking Australians should be angry about how this all came about. Most of us have never even heard of these companies because they are not Australian.

They made it to the front position of infrastructure in Australia by getting control and taking over quality Australian business which has been manipulated in share price over a number of years. It is the share price manipulation which is the key — it gives the larger companies the ability to take over Australian companies at a reduced price.

One such company which has benefited from share price manipulation is Spain’s Grupo ACS. The first Australian company for Grupo to get control of was Leighton Holdings and it did this through its German subsidiary Hochtief. Leighton’s name was changed to CIMIC, now very much under the Spaniards' control. Using CIMIC, Grupo ACS went on a hostile takeover spree and successfully took over Queensland’s Sedgman and NSW’s UGL Limited, two engineering firms. They unsuccessfully tried to take over WA’s Macmahon Holdings and they also got a controlling stake in Queensland developer Devine Limited.

With UGL, a new CEO took over at the helm of UGL in June 2014 and at that time the share price was around $7. By August 2015, UGL had announced massive writedowns of its businesses which pushed the company into a $236.4 million annual net loss. They even took a $13.2 million charge to reflect a more conservative method of accounting for tender costs. This aggressive accounting initially saw a sharp decrease in the share price.

Then the same story we see played out time and time again on the ASX happened again. The share price manipulators used the negative announcements to aggressively tune their algorithmic programs to manipulate the share price down, CIMIC announced a hostile takeover, the board recommended the takeover and the CEO got a $7.6 payout on leaving. The final takeover price was $3.15. Once finalised, the ex-UGL CEO moved into a new CEO position. Another UGL director who recommended the acceptance of the takeover was given a board position at CIMIC. The cheap takeover could not have happened without the illegal manipulation by the algorithms and the board's recommendation to accept. Very easily this Australian company was now in the hands of the Spanish.

A similar hostile takeover happened to Sedgman. One Sedgman director who thought the CIMIC hostile takeover offer undervalued Sedgman was “unable to sleep at night” thinking about the consequences of rejecting the takeover. He went on to recommend acceptance to shareholders.

Devine Ltd shareholders know too well the pain that comes from rejecting a CIMIC takeover. To begin with, Devine shareholders were offered 92c for the company. CIMIC-controlled Devine rejected that offer. CIMIC then announced their intention to takeover Devine at 75c. While the 75c offer was on the table, another company made a higher offer at 90c. The 90c offer was rejected by the Devine board and then when shareholders naturally refused CIMIC’s 75c offer, things have been downhill ever since. After several years of massive losses too big to be true, the Devine share price sits at 21.5c waiting for the next takeover offer or for the Devine board to send Devine into administration. Devine assets were worth $1.50 at the time CIMIC got control and in three years the assets have mysteriously shrunk to 60c without a reasonable explanation.

It would be difficult to find financial results and Chairman’s addresses less comprehensible than those announced by Devine over the past three years. There was considerable overlap between the businesses conducted by Devine and the businesses conducted by CIMIC. Without adequately explained losses, those assets appear to have dissappeared into thin air.

Since acquiring UGL and Sedgman, CIMIC has received big profits from both these companies. In fact, after integrating Sedgman, CIMIC sharply revalued upwards the carrying value of its 37 per cent stake it held in Sedgman before the takeover. The UGL and Sedgman hostile takeovers helped CIMIC deliver a 12 per cent annual net profit the following financial period.

Apart from shareholders being shortchanged, sovereign assets being lost and loss of tax revenue, these takeovers are concentrating the industry. Fewer, larger players now tender for the government contracts and they have state governments at their mercy. These companies run over time and over budget and then overcharge us taxpayers for it.

A few examples from two of the biggest Sydney infrastructure projects that warrant a senate enquiry.

The CPB, Dragados, Samsung C&T joint venture which is building the new M5 from Beverley Hills to St Peters, has claimed design and construction changes to the project entitled it to “change costs”. The NSW State Government argued the quantum of the claim should be $9.3 million, however leaked sources to the Sydney Morning Herald revealed that the joint venture parties were claiming $700 million.

You might think that has nothing to do with Grupo ACS, but CPB is actually owned by CIMIC which in turn is controlled by Grupo ACS and Dragados is another Grupos ACS company.

In May 2018, it was revealed that the NSW Government had to compensate the operators of the $8.3 billion Northwest Metro project’s Skytrain, the North West Rapid Transit Consortium, between $400 million and $500 million over delays due to cracked spans during the construction by Italian contractors Salini Impreglio. The North West Rapid Transit Consortium is made up CIMIC-owned CPB Contractors, CIMIC-owned UGL, John Holland – a company sold off by CIMIC to a Chinese company in 2015 – MTR Corporation – a Hong Kong Rail operator – and Plenary Group.

In August 2018, another Spanish infrastructure company, Acciona, began legal action against NSW’s transport agency. The transport agency accused the Spanish company of launching a $1.1 billion lawsuit against the state because the contractor is liable to pay “substantial sums” in damages for the project running late.

Imagine a government’s predicament — they are trying to deliver infrastructure projects in an uncompetitive market. It’s hard to hold these companies to account for any mistakes and when there are cost blowouts and time delays, these companies will continue to claim for more than they deserve. Similar situations to the Opal Tower are bound to occur because these companies are in control and if governments try to hold them to account they are likely to get sued. In 2018, Grupo ACS made a complex deal with Atlantia, an Italian infrastructure firm, to jointly buy the Spanish tollroad operator Abertis. After striking this deal and using Grupo’s Australian advantage, Atlantia plans to expand into Australian toll road construction. It was an Atlantia-owned company that was responsible for the maintenance of the Morandi Bridge, which collapsed in Italy, killing 43 people.

The concentration of the infrastructure industry is so profound that Victorian Treasurer Tim Pallas made an unprecedented move to prevent market leaders Lendlease, CIMIC and John Holland from teaming up to bid for the State’s $16.5 billion North East Link road project. It reflects the fact that the market for major infrastructure projects has switched from a buyer's market to a bidder's market, with more projects than bidders. Major collusion between the main players is an undoubtable consequence.

Court cases need to be initiated to hold those to account who have orchestrated this situation. It must start at the point where the illegality started and that point is the illegal manipulation of the share prices which led to takeovers by these multinational companies, resulting in a concentration of the industry, collusion between the larger players and governments being at a loss for what to do. Governments are at the complete mercy of companies like Grupo ACS.

We have got to clean up this dirty stockmarket now. We need a Royal Commission into the ASX and ASIC and we need those who manipulate share prices which paves the way for the foreign raiders, trialed according to the law. That law is section 1041a of the Corporations Act which states a person cannot take part in a transaction that creates an artificial price. It is a law that ASIC continues to ignore with the most serious ramifications for Australian society.

Ben Pauley obtained a degree in Natural Resource Management from the University of WA before going to work for three years in the WA prison service. He left that job to pursue a career investing in the stock market. You can contact him at devinechanges2018@gmail.com